Stock-Based Compensation

Prior to the second quarter of fiscal 2014, the Company had one equity-based compensation plan, the 2004 Long-Term Incentive Compensation Plan (2004 LTIP), from which stock-based compensation awards could be granted to employees and directors. The Company’s 2013 Long-Term Incentive Compensation Plan (2013 LTIP) became effective in the second quarter of fiscal 2014, and replaced the 2004 LTIP as the sole plan for providing stock-based compensation awards to employees and directors on January 1, 2014. The 2004 LTIP has been terminated as to future grants although outstanding awards under the 2004 LTIP will continue to be governed by that plan. In addition, the Company has other equity-based compensation plans that have been terminated so that no future grants can be made under those plans, but under which options are currently outstanding.

Prior to fiscal 2013, the Company’s stock-based awards had been service-based only. Beginning in fiscal 2013, the Company issued grants of awards that also contain performance-based conditions. Performance-based conditions are generally tied to future financial and/or operating performance of the Company. The compensation expense with respect to performance-based grants is recognized if the Company believes it is probable that the performance condition will be achieved. The Company reassesses the probability of the achievement of the performance condition at each reporting period, and adjusts the compensation expense for subsequent changes in the estimate or actual outcome.

The Company also has an Employee Stock Purchase Plan (ESPP) that provides employees with the opportunity to purchase common stock at a discount. The ESPP limits employee contributions to 15% of each employee’s compensation (as defined in the plan). The ESPP allows employees to purchase shares at a 15% discount to the fair market value of common stock on the purchase date during the twelve-month participation period, divided into two equal six-month purchase periods, and provides a look-back feature. At the end of each six-month period in April and October, employees participating in the plan purchase the Company's common stock through the ESPP at a 15% discount to the fair market value of the common stock on the first day of the twelve-month participation period or the purchase date, whichever is lower. The plan also provides for an automatic reset feature to start participants on a new twelve-month participation period if the stock price declines during the first six-month purchase period.

Stock Option Awards

The following table summarizes option activity during the nine months ended March 30, 2014 (in thousands, except per share data):



	Number of Shares		Weighted Average Exercise Price
Outstanding at June 30, 2013	8,657			$35.67
Granted	2,969		55.21
Exercised	(2,260	)	36.28
Forfeited or expired	(300	)	40.20
Outstanding at March 30, 2014	9,066			$41.77

Restricted Stock Awards and Units

A summary of nonvested restricted stock awards (RSAs) and restricted stock unit awards (RSUs) outstanding as of March 30, 2014, and changes during the nine months then ended, are as follows (in thousands, except per share data):



	Number of RSAs/RSUs		Weighted Average Grant-Date Fair Value
Nonvested at June 30, 2013	647			$33.80
Granted	527		54.76
Vested	(252	)	33.09
Forfeited	(22	)	40.37
Nonvested at March 30, 2014	900			$46.11

Stock-Based Compensation Valuation and Expense

The Company accounts for its employee stock-based compensation plans using the fair value method. The fair value method requires the Company to estimate the grant-date fair value of its stock-based awards and amortize this fair value to compensation expense over the requisite service period or vesting term.

The Company currently uses the Black-Scholes option-pricing model to estimate the fair value of the Company's stock option and ESPP awards. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, the risk-free interest rate and expected dividends. Due to the inherent limitations of option-valuation models, future events that are unpredictable and the estimation process utilized in determining the valuation of the stock-based awards, the ultimate value realized by award holders may vary significantly from the amounts expensed in the Company’s financial statements.

For RSAs and RSUs, the grant-date fair value is based upon the market price of the Company’s common stock on the date of the grant. This fair value is then amortized to compensation expense over the requisite service period or vesting term.

Stock-based compensation expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.

Total stock-based compensation expense was as follows (in thousands):



	Three Months Ended				Nine Months Ended
	March 30, 2014		March 31, 2013		March 30, 2014		March 31, 2013
Income Statement Classification:
Cost of goods sold		$3,129		$2,334		$8,357		$6,875
Research and development	3,912		3,441		11,453		10,445
Sales, general and administrative	8,970		8,140		26,451		23,625
Total		$16,011		$13,915		$46,261		$40,945